Many British cattle feed on South American soy. Photograph by Christopher Furlong/Getty Images

Animal feed imported from South America for the UK's meat and dairy industry is causing the destruction of tropical rainforests and increasing greenhouse gas emissions, a new study reveals.

Friends of the Earth said half the soy imported to the UK to feed livestock could be replaced – with home-grown alternatives such as oil seed rape, sunflower seeds or beans, and grazing on grass and clover – at a lower environmental cost.

FoE is calling on the government to use EU subsidies to reward farmers who use environmentally friendly practices, such as grazing animals at a low density and on uplands. The campaign group also wants to see farmers paid a fair price by supermarkets for producing quality meat, and says consumers should be encouraged to reduce their intake of meat and dairy – with the emphasis on less, but higher-quality food.

According to its report, Pastures New, a reliance on soy imported from South America is leading to forests and grasslands being cleared for soy plantations, or for beef ranching which has in turn been displaced by other soy farms.

Sandra Bell, senior food campaigner at Friends of the Earth, said: "Many people choose British milk and meat without realising that animals in our farms munch on feed produced by destroying wildlife and rainforests in South America.

"Animals should be born, bred and fed British – but pressure from supermarkets and biased EU subsidies force farmers to rely on damaging imports. The government must listen to growing calls for it to restore a thriving meat and dairy sector by helping farmers switch to planet-friendly practices."

The Friends of the Earth study suggested half the soy imported for animal feed into the UK could be replaced with home-grown alternatives which would use around 8% of the country's arable land.

Less intensive grazing on UK land helps store carbon in the soil and boost wildlife, while growing protein crops can fix nitrogen in the ground, reducing the need for chemical fertiliser.

But low prices for soy, the financial risk of switching crops and a lack of incentives for the greener alternatives to intensive farming stand in the way of a move towards more environmentally friendly animal feeds, the report said.

Friends of the Earth said uplands farmers, whose land is suitable only for grazing, not for growing crops, did not get adequate support from the government.

The organisation claimed EU support for intensive livestock farming was worth £700m while the new subsidies for uplands farmers were worth only £25m. Subsidies for growing protein crops such as peas are set to end in 2012.